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80% or more savings? You are probably wondering how and why this is possible
but let me assure you it is not only possible but you may save much more. And
although ACH Payment Processing certainly isn’t new (it has been around for
over 25 years) it may be new to you and your business.
We wrote this book to educate businesses and individuals on the many time and
money saving tools available using ACH Payment Processing.
Most businesses are familiar with credit card processing. You obtain what is
known as a merchant account and then process transactions in either a retail
(POS-point of sale) environment or a non face to face Internet or Mail Order,
Telephone Order (MOTO). The business owner is charged a transaction fee plus
a discount fee. These fees on average may be .30 and 2% so that a $100
transaction would cost the business owner $2.30 .30 plus 2% of $100.
ACH stands for Automated Clearing House and generically refers to the
movement of money electronically. You sometimes hear of EFT, Electronic
Funds Transfer and although EFT technically refers to a different type of
transaction, for our purposes both will refer to the moving of money electronically.
The ability to move money without actually writing checks or delivering cash has
been available for many years but it has not been until fairly recently that the
average business has been able to take advantage of the many benefits. Big
insurance companies first saw the advantage of taking monthly payments directly
from a customer’s checking account and with the help of their banks were among
the first to realize the cost savings. Banks have what is called a Fed Line that
acts as a conduit for the ACH transaction to take place. Many banks do not
extend this ability to their clients and more importantly they tend to have
cumbersome tools (e.g. software) to enable a business to efficiently utilize the
service.
Enter the third party processor (TPP). These companies have secured a
relationship with a bank that enables them to use the bank’s Fed Line. The only
The TPP party processor typically has developed a user friendly software or
Internet product that makes it easy for businesses to send transaction
instructions and just as importantly get transaction reporting.
The TPP typically underwrites and approves businesses themselves and take on
what can amount to a substantial amount of risk. The issue of financial risk is an
important consideration and is addressed in Chapter
We believe you will find this very informative and ultimately beneficial to you and
your business.
The volume of ACH payments in 2001 exceeded 7.99 billion, up 16.2 percent
from 2000. The value of these payments was $22.2 trillion, representing a 9.2
percent increase. Annual transaction volume on the ACH Network increased
by more than one billion payments for the
first time.
Originator
Any individual, corporation or other entity that initiates entries into the Automated
Clearing House Network
Receiver
An individual, corporation or other entity who has authorized an Originator to
initiate a credit or debit entry to a transaction account held at an RDFI.
Typically your funds are available to you four days after your transactions are
processed. There are several reasons for this delay but primarily it is because an
ACH transaction is not an instantaneous movement of money. The transaction
proceeds as if the money being debited is available. The two banks involved
(ODFI and RDFI) have four days to get the details sorted out.
If you were funded by the TPP in two days and then reporting is received that
indicates a returned item (NSF etc.) your account would then need to be debited
for these funds. By waiting four days when you are funded the dollars won’t be
taken back unless the consumer revokes authorization. The TPP does enjoy a
float advantage.
Here are some of the many ways you can use and benefit (read save money)
from ACH Processing:
The number one reason is that you save money-in some cases a lot of money.
Then there is the substantial amount of time you can save. Automation of
business tasks is a powerful tool in reducing costs and ACH payment processing
offers many ways to do just that.
The Small Business Administration puts the cost of invoicing at over $3.00 per
invoice. This figure takes into account generation, mailing, administrative and
time value of money.
Consider a $100 item that you sell by credit card. If the discount rate is 2% and
you pay .30 a transaction you have paid $2.30 for this transaction. Compared to
.35 you save over 85% of the transaction costs.
Return costs for NSF (non-sufficient funds, incorrect account #, closed account)
vary by state but can be anywhere from $5 to $30. Using ACH processing you
can expect to pay about $1.50. This fee like transaction fees is largely dependent
upon volume of monthly transactions.
What about the time you spend calling customer’s who are late with payment
only to be told the “check is in the mail “. You can now ask for that payment and
take it over the phone.
Your accounts receivable team can tell you about the work involved in posting
payments. Using a processor with good reporting tools will enable you to
automate much of this task. Reports can be provided in CSV or other formats
that make automating this process relatively easy.
How about the time and expense involved in printing and mailing checks? Now
you can make payments electronically at the touch of a button.
Saving money and time and offering your customer’s more payment options are
compelling reasons to look at what ACH Payment Processing can do for your
business. For more information visit http://www.ach-payments.com
Typically software programs have import/export features that allow for simple
transfer to and from existing software packages. Other features include auto fill
for recognizing customers, routing number validity checking and often the ability
to perform an ACH or credit card transaction.
Transactions must be “batched” to the processor. Essentially that means that all
the transactions you schedule sit in a queue waiting to be sent to the ACH
processor. You have to send them, typically by pressing a button in the software.
Reporting can come back to you either from within the software or via Internet.
The software allows for multiple users to be able to work with software and also
allows the administrator to limit user access to features like crediting or viewing
reporting.
PC software is typically used when the business likes to have control of all
transaction data or is looking for import features.
1. Software or Internet ASP fee: Usually a one-time fee and can vary but
usually from $199 to $499. Look for a money back guarantee.
2. Per transaction fee: .35 per transaction is common for relatively low
volume (number) of transactions. This price can come down considerably
with larger volume.
3. Per return fee: $1.50 is typical for an NSF, incorrect account number etc.
There are a wide variety of reasons for a return (click here). This fee is
also volume dependent and can also be quite a bit less.
4. Monthly fee: Expect to pay around $20 for reporting and support.
You may wish to use the processors verification features for which they will
charge a per transaction fee.
There are processors who may charge a per batch fee or have monthly
minimums but for the most part you should not have to pay these fees. By
working directly with a bank you may be able to pay less but banks may not offer
the service and again have very limited front end and reporting tools.
Discount fees may be charged if the processor feels your business may be
subject to higher chargebacks. In the ACH world a consumer has sixty days to
dispute an ACH debit to their account as unauthorized or possibly to revoke
authorization. Some examples may be telemarketing (inbound calls) or credit
repair businesses. A TPP might also charge if the average transaction dollar
amount is high but the number of transactions per month is low. This becomes a
high risk low reward situation for the TPP who is of course in business to make
money. These discount fees are typically in the 1-2% range.
For this reason there is an underwriting process that will probably require a
business to show proof of the business entity e.g. Articles of Incorporation, bank
statements, and possibly a tax return. The more money a business wants to be
approved to process each month the more detail the underwriting department
would want to see.
In looking for a potential partner for your business you want a processor with the
following characteristics:
• They have been in business for at least a few years. You want to know
that they will be around for as long as you need them.
• They have an established client base of low risk customers. High risk
clients (telemarketers, debt consolidation and travel) can and have caused
TPP’s to go out of business (see page 12).
• Look at their front end tools. Is their software or Internet Virtual Terminal
simple to use?
• Reporting is a big deal. Does the processor let you know the status of all
your transactions both settled (good) transactions and returns or do they
only show you “bad” transactions and leave you to separate out the settled
transaction (paid)?
• Do they have satisfied customers doing something similar to what you
want to do? Ask.
• Do they have a customer support team?
• Do they a technical support team for product or integration questions?
The next step after that will be real-time debiting of a checking or savings
account. This is available now in certain retail circumstances. A limited
number of banks participate.
What is coming is the ability to debit the vast majority of accounts instantly,
much like an ATM transaction. There isn’t a definitive time frame on this as
there are myriad technical challenges but it will be a reality and sooner rather
than later.
Sincerely,
Wayne Akey
Email:wakey@ach-payments.com